Warning for savers: ‘teaser’ rates are back

Eye-catching savings accounts, with ‘teaser ‘rates that disappear after a year, are back.

Four of the top six easy access accounts use ‘teaser’ rates, including the new market-leading deal from The Post Office, which pays 1.33% but has a 12-month bonus of 1.08%. That means after a year, the rate falls to just 0.25%.

Banks and building societies use ‘teaser’ rates to propel deals to the top of the best buy tables and pull in savers’ cash.

These accounts have fallen out of fashion in recent years.

RBS, Natwest, Nationwide and HSBC stopped offering bonus rates after a crackdown by the Financial Conduct Authority (FCA) in 2015. Banks also didn’t have to compete so hard for savers’ cash thanks to cheap government money from the Funding for Lending and Term Funding schemes.

But with both schemes closing this year, banks have once again started to coax savers in using bonus rates.

Other providers using teaser rates are Coventry Building Society, which pays 1.3% with a 0.3% bonus, Tesco Bank, which pays 1.28% with a 0.73% bonus and the AA, which pays 1.15% with a 0.95% bonus.

Are bonus rates a bad thing?

‘Teaser’ rates are fine if you are a committed switcher. Banks are obliged to remind you in advance that your rate is due to fall.

But most people still don’t switch – 57% of people surveyed by the FCA hadn’t switched when their most recent bonus expired.

“If you’re not the kind of person who remembers to switch on the day a bonus rate expires, you’ll be better off with a simple bonus-free account,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

Anna Bowes, director of savings advice site, Savings Champion, said a savings account that pays the same rate to new and existing savers could be better for people who forget to move money regularly.

Unfortunately, there are only seven such accounts on the market that are paying 1% or more.

Bowes said: “It’s really important for savers to understand the terms and conditions, so that there are no nasty surprises in the future. This is particularly important if your chosen account includes a hefty bonus that will see the rate plummet after 12 months. The providers hope that you’ll forget so that they can pay you a pittance going forward.

“If you’ve got money languishing in an old account, it’s vital to check the rate you are now earning and switch if it’s not competitive. It can make all the difference to the pounds in your pocket.”

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